Banks' profitability to be hit by Brexit fears over risky assets

I'm City A.M.'s economics reporter, looking at the news, stories and data that move markets in the UK, Europe and around the globe. I also cover broader developments in the business and political worlds at home and abroad.

Barclays and RBS still have more than $700bn in non-core assets (Source: Getty)

Jake Cordell

Market volatility will sap the efforts of Europe's biggest banks to offload their riskiest assets, and continue to drag on their profitability, a new study has warned.

Moody's said this morning that the five largest investment banks - Barclays, Credit Suisse, Deutsche Bank, RBS and UBS - will have to accept discount prices for so-called non-core assets if they want to sell them to increasingly risk-averse investors over the next 12-18 months.

In total, the five banks dubbed "global investment banks" own around $1 trillion (£820bn) of non-core assets, down from more than $1.5 trillion in 2013. Barclays accounts for around half the total, while RBS is holding on to nearly one-third of Europe's total non-core assets.

However, the pace of sales and disposals is set to slow as those buying up the assets, such as private equity firms, will start to demand steeper discounts or stay away all together.

Concerns over the health of the global financial system were compounded by Standard and Poor's (S&P) raising fresh concerns about the state of Chinese banks today. The ratings agency said Chinese banks could lose $1.7 trillion if the country's debt pile continued to swell, with junk loans set to triple to 17 per cent of the total stock.